Every year, taxpayers fall victim to tax scams. The United States has a complicated tax code, which provides the perfect opportunity for scammers to take advantage of uninformed filers. The tax scams highlighted in IRS DIRTY DOZEN list target both the average Joe and high-net-worth individuals and falls into three broad categories. Stay alert and protect yourself:
If It Smells Like A Scam & Looks Like A Scam…
THE MOST COMMON TYPES OF TAX SCAMS
We will get into specifics about what these scams look like a little later. For now, familiarize yourself with the most common types of tax scams so you know what to look out for. It’s no surprise that COVID relief programs and social media scams top the list, but some of the other scamming methods might surprise you.
Phishing scams often involve fake emails claiming to be IRS personnel. This year, many phishing scam emails are using keywords like “coronavirus,” “COVID-19,” and “Stimulus.” The IRS warns taxpayers that it will never initiate contact with taxpayers via email about a tax bill, refund, or Economic Impact Payment.
The IRS warns that fake charity scams tend to rise during times of need. The prevalence of charity scams will likely rise for the foreseeable future due to the current COVID-19 pandemic. Taxpayers should be particularly skeptical of charities with names that are similar to or sound like nationally known organizations. Taxpayers can check charity names on the IRS’s website here when in doubt.
Threatening Impersonator Phone Calls
One common IRS impersonation scam involves phone calls impersonating IRS agents, threatening potential lawsuits, or threatening arrest. Taxpayers should be aware that the IRS will never threaten a taxpayer or surprise him or her with a demand for immediate payment.
Social Media Scams
Scammers are more and more frequently using social media to conduct a variety of scams. So it is no surprise that social media scams have led to an increase in tax-related identity theft. Scammers often obtain personal information and may send an email to a victim with a link that contains malware. Taxpayers should be wary of odd-looking texts or unusual communications that appear to be from friends, family, or co-workers.
EIP or Refund Theft
IRS’s annual list of top tax scams still includes refund fraud and theft. But this year, their focus is on Economic Impact Payment scams and theft. These scams are often fueled by identity theft, with scammers filing fake tax returns to redirect refunds to the wrong address. IRS criminal investigation is on the case.
Seniors are always prime targets for tax scams, and this year’s COVID-related phishing scams have hit them especially hard. Don’t let scammers reel you (or your loved ones) in with bogus emails, texts, or social media messages. Stay vigilant and protect your personal information.
Scams targeting non-English speakers
Although they prefer tried and our methods, tax scammers have a new tactic: preying on those with limited English proficiency, especially those who received Economic Impact Payments. These cunning fraudsters use just enough personal information to make their scam calls seem legitimate. If someone requests the last 4 digits of your Social Security number or asks for a phone number, be wary.
Unscrupulous Return Preparers
Taxpayers beware: not all tax preparers have your best interests at heart. The IRS warns against “ghost” preparers who don’t sign the returns they prepare. Legitimate preparers have a Preparer Tax Identification Number (PTIN) and will sign and include it on your return. Don’t fall for preparers who promise inflated refunds with shady tax credits or ask you to sign a blank return. And if a preparer’s fees are tied to your refund, run in the other direction.
Fake Payments with Repayment Demands
For this tax scam, scammers will steal your personal data and use it to file a fake tax return, getting a refund deposited in your account. The scammer then contacts the taxpayer, claiming to be an IRS employee. The scammers inform the taxpayer that the funds have been deposited in error and that they are required to be returned immediately. The scammers typically instruct the taxpayer to purchase gift cards for the amount of the refund.
Payroll and HR Scams
If you’re an employer, beware! Scammers are targeting your W-2 and employment information through phishing schemes. With COVID-19 causing many businesses to close and employees to work from home, the risk of these spoofing schemes is at an all-time high. The most common scams involve gift cards and direct deposit, with fraudsters impersonating internal email addresses and employees to steal sensitive data. Stay vigilant and protect your business from these dangerous attacks.
Ransomware is not just a buzzword – it’s a serious threat that’s growing at an alarming rate. Hackers use this malware to lock up a victim’s computer, internet network, or server, and then demand payment in virtual currency to unlock the stolen data. Once it’s on your computer, it’s often too late. Stay vigilant and protect yourself from becoming the next victim.
You Get A Scam, You Get A Scam, You Get A Scam
EXAMPLES OF TAX SCAMS
Some scams are obvious, some not so much. The following highlights are just some of the most heavily promoted tax “strategies” that are in fact, just tax scams. If anyone has approached you with the following suggestions to save on your taxes, run. These are red flags.
1. “Maximizing your tax savings with CRAT.” If you have appreciated property, you have the option to transfer it to a Charitable Remainder Annuity Trust (CRAT). The CRAT can sell the property without paying taxes on the profit, and use the money to buy a single premium immediate annuity. The beneficiary only needs to pay tax on a small part of the annuity proceeds, and the rest is tax-free.
2. Claiming deductions for “insurance coverage” through foreign corporations with cell arrangements or segregated asset plans. This involves using foreign captive insurance. This strategy involves participating in an insurance arrangement with a foreign corporation, often located in Puerto Rico, that has cell arrangements or segregated asset plans in which the owner has a financial interest. The owner then claims deductions for the cost of “insurance coverage” provided by a fronting carrier, which reinsures the “coverage” with the foreign corporation.
3. Utilizing monetized installment sales to effectively receive sales proceeds through loans and avoid taxes. Monetized installment sales involve sellers who improperly use the installment sale rules to receive sales proceeds through loans in the year of a property sale. In these transactions, the seller sells the property to a buyer for cash and then sells the same property to an intermediary for an installment note. The intermediary then sells the property to the buyer and receives the cash purchase price, while the seller receives an amount equivalent to the sales price through a non-recourse and unsecured loan.
The Dirty Dozen Tax Scams
And there you have it, the most likely tax scams for the filing year 2022, BUT there are infinite tax scams out there. The best way to ensure that you don’t fall victim to one of these common scams is to get in touch with a reliable, trustworthy accountant. If you need help with that, reach out to us. We have a network of dependable accountants that spans the entire country.
At the end of the day, if something seems sketchy or too good to be true, it probably is… It’s always better to request an extension than to file uncertainly. Happy Filing!